Indian bankers see demand for credit picking up

By siliconindia staff writer   |   Thursday, 11 December 2003, 20:30 IST
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MUMBAI: Demand for bank loans is picking up in India as Asia's third-largest economy shifts into higher gear, leading bankers said on Thursday. Officials at State Bank of India (SBI), the largest bank in the country, and ICICI Bank, its nearest rival, separately said there was increased demand from customers seeking to expand capacity after a lull of nearly three years. The officials were speaking on the sidelines of a bankers' conference. The Indian economy is expected to expand by at least seven per cent in the current fiscal year after growing by only 4.3 per cent in 2002-03. SBI chairman AK Purwar said he expected his bank's non-food credit, which represents loans to business and industry, to grow by 15 per cent in the current fiscal year, after expanding by 12-13 per cent last year. A pick-up in commercial lending will help broaden banks' earnings which, in recent years, have depended heavily on bond trading gains and retail lending. "Everybody is talking of expansion," Purwar said, referring to discussions between the bank's officials and customers. The state-controlled bank, which employs some 200,000 people in over 9,000 branches across the country, has a share of around 20 per cent of all banking business in India. ICICI Bank's managing director KV Kamath also said his bank was getting increased demand from customers. He did not give numbers. "Customers are coming to us every day now and there is a clear interest in wanting to set up new capacity," Kamath said. "We can see the first signs of credit pick-up. It is premature but we can clearly see a pick-up between now and the next 12 months," he said. Kamath said the demand for bank loans cut across industrial sectors. Industrial output accounts for around 25 per cent of gross domestic product. "It started with light engineering, but growth can be seen in every sector now," he said. Analysts say a steep drop in interest rates in the past three years has helped Indian industry restructure and become more competitive. The benchmark bank rate, used by commercial banks to price their loans, has fallen by 200 basis points in the past three years. Interest rates on bonds issued by companies have fallen even more steeply -- nearly 600 basis points in the same period. But rates could have bottomed out, Kamath said. "My sense is that interest rates are bottoming out...let us leave it to the regulators," he said, when asked on the future direction of interest rates. "We need to understand what the signals are," he said. These included inflation, the exchange rate and global trends, he added.